Get to know 'myRA'

President Obama, in his State of the Union speech on Jan. 28, proposed a new retirement savings program.

Dan Weber, Association of Mature American Citizens (AMAC) president, noted that “the president’s MyRA plan sounds a lot like the Early Retirement Account (ERA) we’ve been proposing for more than a year and a half as an aspect of our Social Security Guarantee initiative . . . it appears our message is getting through — an individual, discretionary retirement savings plan is a must have if we are to provide a true Social Security guarantee for our children and future generations. The MyRA is a baby step in the right direction.”

According to MarketWatch.com:

The “myRA” retirement plans proposed by President Obama will be structured like Roth IRAs; they’ll rely on a new kind of Treasury savings bond that guarantees them against losses; and they’ll have a $15,000 maximum account balance, according to details disclosed by the administration. The president won’t need Congress’s approval to get the myRA off the ground, though he will need some logistical help from employers to set up the accounts.

The myRA is designed to serve people whose employers don’t provide access to a retirement plan—a category that experts have estimated includes about half of all workers. Lack of access a particularly big issue at small businesses, since small employers often can’t afford to offer their own plan. The administration is being careful to label these as “starter” accounts; the emerging details make it clear that the myRA won’t have much value to an investor who’s had time to amass a respectable nest egg.

Among the key details:

n A new kind of savings bond.

The administration says that investments in a myRA will be backed by a savings bond-like security, with the same variable-interest-rate return offered by the Government Securities Investment Fund in the federal employees’ Thrift Savings Plan. That return isn’t exactly world-beating, especially when interest rates are low—as Damian Paletta and Anne Tergesen report today in The Wall Street Journal, the federal fund returned 1.47 percent in 2012, with an average annual return of 3.61 percent from 2003 through 2012. But the value of the account would never go down.

n No fees, low minimums. A saver could open a myRA with as little as $25, and thereafter, contributions of any size would be allowed, with minimums of as little as $5. That departs from the savings-bond model, in which bonds can only be amassed in fixed denominations of $50 and up. Savers also wouldn’t pay any fees on their accounts. Although many big financial-services companies have eliminated their annual fees on traditional IRAs, those that do still charge fees can eat up a substantial percentage of the earnings of beginning savers.

n It’s not attached to your job. Employers won’t be administering, or paying administrative costs for, the myRA—the Treasury Department is going to pick a private sector firm to take care of that. So savers will be able to keep their accounts when they switch or leave jobs. Some consumer advocates hope that’ll help savers avoid the savings “leakage” that happens when workers change jobs and cash out their 401(k) plans. The administration will need employers’ help on one level, however: They want myRAs to be funded by paycheck deductions, which employers would need to set up. The White House says no employer will be forced to take part in the myRA. President Obama has also proposed a separate provision that would require employers who don’t offer retirement plans to set up automatic IRA deductions for their workers, but that would require an act of Congress.

n Funded after-tax. The myRA will be structured like a Roth IRA account, which means savers will fund it with after-tax dollars—rather than with a pre-tax deduction, as with a 401(k). That would also mean that under most circumstances, eventual withdrawals from the account wouldn’t be taxed.

n Watch out for caps. The myRA will be available to anyone with annual income of less than $191,000—so, in theory, members of Congress could sign up! But more important, once a saver amasses $15,000 in a myRA, he’ll be required to transfer the account to a private-sector Roth IRA.

With its low caps and its potentially low returns, the myRA doesn’t seem especially competitive with more traditional 401(k)s and IRAs. Jeff Brown, a professor at the University of Illinois College of Business and a former senior economic adviser to the George W. Bush administration, noted that the low stakes could actually make the myRA program more palatable to the financial-services industry.

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